5 Common Mistakes That Businesses Make in Tax Returns

While the tax year may not be over yet, it's never too early for businesses to start preparing. Taking a proactive approach can help you avoid costly mistakes and ensure you're maximising your deductions and credits.

Here's a breakdown of some common tax pitfalls businesses encounter, along with strategies to steer clear of them.

Mistake#1 - Mismanaging deductible expenses

You might be leaving money on the table by overlooking perfectly valid deductions. From office supplies and travel costs to software subscriptions and even internet bills, there's a chance you can claim them back come tax time. But how do you avoid missing out on these savings?

First, keep a meticulous record of your expenses. Implement a system to capture receipts and categorise everything you spend money on. Expense-tracking apps can be a real lifesaver here, streamlining the whole process.

Second, stay on top of tax regulations – they can change year to year. Familiarise yourself with the current rules around deductible business expenses. The Australian Taxation Office (ATO) website is a great resource, but consultations with a tax professional can provide even more personalised guidance.

Finally, don't be afraid to seek professional help. A qualified accountant can navigate the complexities of tax deductions and ensure you're claiming everything you're entitled to. By taking these steps, you can maximise your deductions and keep more hard-earned cash in your business.

Mistake#2 - Incomplete record-keeping

Tax season shouldn't be a nightmare of scrambled receipts and piles of paperwork.  Think about setting up a system for your records throughout the year.

Consider getting cloud accounting software like Xero, MYOB, Quickbooks or Freshbooks. They make record-keeping a breeze, keep your data organised, and even let you check your finances whenever you want.

On top of that, these apps make it easy to capture and store receipts, claim expenses, issue invoices, and track all your financial records.  In Australia, you do need to keep copies of your receipts for five years. We recommend making sure you have digital copies in your accounting system as well, and shred what you don't need.

Most importantly, don't let this become a chore you put off. Make updating your software and filing things away a regular habit. This way, when tax time rolls around, you'll have everything nice and organised, and you can avoid that frantic scramble.

Mistake#3 - Failing to stay informed on changing tax laws

Tax regulations are not static. Staying on top of changes is crucial for optimising your tax strategy.

Regular consultations with tax professionals can help you stay ahead of the curve, ensuring your business is well-informed and able to make strategic decisions in response to evolving tax laws.

Mistake#4 - Inadequate tax planning

Effective tax planning is an ongoing process, not a one-time event. So, turn it into a strategic advantage.

Team up with your accountant to find the business structure that lets you keep the most cash. Being a sole proprietor, partner, or corporation affects your taxes differently, so pick the one that works best for you.

Next, explore how to distribute profits among business owners in a tax-efficient manner. Your accountant can brainstorm some tax-friendly strategies for this. They can also help you identify relevant government programs offering tax breaks and bonuses that your business qualifies for.

By keeping tax planning on your radar all year long, you can minimise how much you owe and maximise your business's financial well-being. This proactive approach will save you money now and help your business thrive in the long run. It's a win-win!

Mistake#5 - Non-compliance with GST obligations

Don't let the Goods and Services Tax (GST) become a source of stress.

First things first, keep a close eye on the GST you collect on your sales and the GST you pay on your purchases. Spreadsheets work just fine, but accounting software can make things a lot easier.

The next step is to regularly check that all your GST records match up with your sales and purchase invoices. Think of it like double-checking your bank statement – just for GST.

And if you ever feel like you're getting tangled in the complexities, don't hesitate to call in a tax advisor. They're ready to help you file returns, pay the right amount, and answer any questions you might have.

By following these simple steps, you'll be compliant, avoid any tax troubles, and contribute your fair share to the Australian tax system.